The median price of homes has become to real estate what the Dow Jones is to the stock market — a quick, easy way to tell people if times are good or bad.

Many investors walk on air when the Dow soars and have to be talked off the ledge when it plummets. It’s often the same for real estate, with homeowners’ emotions matching the rise and fall of the ubiquitous median home price.

In reality, the median home price does not tell us what most people think it does. (Nor does the Dow Jones.)

Median price is actually a snapshot of the types of homes that are being purchased, not a measure of a home’s worth. This can be significant to those contemplating selling their home.

“It has nothing to do with value,” says Dawn Peck, of Bank of America in Oxnard, Calif., and a mortgage broker for more than 20 years. “It’s about activity. The median price tells us that any homes above the median will take longer to sell.

“The median price is a tool for sellers,” Peck says.

For an example of how the median price can be misleading, consider 2006, when the benchmark was rising in hot home markets like Southern California. This was happening despite the fact that the bottom had fallen out of the demand for entry-level homes, causing home sales to decline.

Headlines at the time said: “Home prices rise despite big drop in sales.”

Although home prices had climbed out of reach for entry-level buyers, those purchasing expensive homes were still active because of the booming stock market. The lesson: When the median rises or drops, it’s important to understand why. In this case, many more expensive homes were being purchased than lower-priced ones.

Conversely, when the market burned out in 2007-08 and many homes were being foreclosed, the median price went into a freefall because investors were snapping up bargain-priced foreclosures and prices had come down enough to attract first-time buyers. This time the market fell for expensive homes because stocks were falling, which has a bigger influence on the purchasing power of the wealthy.

Because the median home price is a flawed indicator of worth, sellers need to look at other factors to determine a home’s value.

One of the best measurements is price per square foot. Although not perfect because it can’t take into account upgrades such as granite countertops vs. laminate, it is much more accurate than the median for estimating your selling price.

“Although I think the median price can be quite accurate with very large samples, the price-per-square-foot becomes a better measurement, in my view, as the samples become smaller,” says Elizabeth Ramsey Cooper-Golden, a Realtor with Remax Huntsville/Madison in Huntsville, Ala.

“And,” she says, “it just can’t be beat when working with neighborhood-sized samples.”